2012 (1) TMI 35 - HC - Income Tax

Whether the provisions of section 32 of SICA would override the effect on the provisions of section 43B BIFR recommended to consider granting exemption from the provisions of Section 43B Tribunal relied on circular No.523 dated 05.10.1988 and 576 dated 31.08.1990 issued by the BIFR while allowing appeals - Held that - Circular No.523 dated 05.10.1988 relates to the provisions of section 41(1), 79 and 115J and not section 43B. Thus, such reliance placed is unsustainable. By virtue of the provisions of section 32 of SICA, the scheme framed u/s 18 shall have the effect of overriding the provisions of the Income Tax Act, be it even the provisions of section 43B. Though u/s 43B, the A.O. may not have any discretion to allow any deduction in respect of interest payable, it is the case of the revenue that by virtue of the provisions of section 32 of SICA, the assessee, who has taken over the sick industry, would have the benefit of the provisions of the scheme. Therefore, the substantial question of law is answered in the negative i.e. against the revenue.

Summary

Issues:
1. Whether the BIFR's recommendation to grant exemption from Section 43B provisions should be treated as a mandate?
2. Whether the circulars issued by the BIFR are applicable to the case?
3. Whether the provisions of Section 32 of SICA override Section 43B of the Income Tax Act?

Issue 1: The Tax Case Appeals were filed by the Revenue challenging the order of the Income Tax Appellate Tribunal regarding the deduction claimed under Section 43B of the Income Tax Act by the respondent assessee who took over a sick unit as per the BIFR scheme. The Tribunal allowed the appeals based on BIFR circulars, leading to the Revenue's appeals. The key question was whether the BIFR's recommendation should be considered a mandate.

Issue 2: The circulars issued by the BIFR clarified that once a scheme is sanctioned under Section 18 of SICA, it will have overriding effect over the Income Tax Act only in matters covered in a specific circular related to Section 41(1) of the Act, not Section 43B. The Tribunal's reliance on these circulars for the deduction claim under Section 43B was deemed unsustainable.

Issue 3: Section 32 of SICA states that its provisions shall have effect notwithstanding anything inconsistent in any other law. The High Court held that the scheme framed under SICA would override the provisions of the Income Tax Act, including Section 43B. The Court emphasized that the scheme's objective is rehabilitation of sick industries, and the benefit of deduction under Section 43B should be considered in that context. The Court dismissed the appeals, stating that the scheme's direction need not explicitly mention the deduction under Section 43B for it to be applicable, as the scheme should be interpreted in light of the rehabilitation purpose. The judgment was also supported by a similar view taken by the Calcutta High Court in a related case.